Trump Orders Panama to Lower Transit Rates or "Return" Canal to the U.S.

The government of Panama has pushed back against President Donald Trump's new demand to lower charges for U.S. vessels or "return" the Panama Canal to American custody.

Over the weekend, Trump accused the government of Panama of charging inflated transit rates to U.S. shipping and U.S. Navy vessels for usage of the waterway, and he suggested a connection to Chinese influence. "When President Jimmy Carter foolishly gave it away, for one dollar, during his term in office, it was solely for Panama to manage, not China," said Trump. "It was likewise not given for Panama to charge the United States, its Navy, and corporations . . . exorbitant prices and rates of passage."

In a follow-up speech on Sunday, Trump warned that if U.S. shipping interests do not get a better deal on canal transits, "we will demand that the Panama Canal be returned to the United States of America in full, quickly and without question."

Panamanian president José Raúl Mulino, a conservative populist who was elected earlier this year, immediately pushed back. "Panamanians may have different views on many issues," Mulino said in a statement. "But when it comes to our canal, and our sovereignty, we will all unite under our Panamanian flag." Three former presidents of Panama - Ernesto Perez Balladares, Martin Torrijos and Mireya Moscoso - cosigned the statement. 

Panama quickly received diplomatic support from the president of Mexico, Claudia Sheinbaum, and from the Chinese Foreign Ministry, which called the canal "a golden waterway for connectivity among countries." Chinese foreign ministry spokeswoman Mao Ning expressed support for Panama and referred back to an earlier era of East-West confrontation - the Cold War, when Beijing backed Panama's long effort to end U.S. control of the Canal Zone. 

120 years of canal development

The Canal Zone was acquired by the U.S. government in 1903 and transformed into a strategic waterway by 1914, at great human and fiscal cost. It remained under American military control until the mid-1970s, but the arrangement was a persistent source of tension with Panama. Over the course of 1973-77, the Nixon, Ford and Carter administrations negotiated two treaties that would return the canal to the Panamanian government. The treaties were signed under Carter and were ratified by the U.S. Senate with bipartisan support. These agreements included the condition that the canal must remain neutral to all shipping, including warships, with "no discrimination against any nation, or its citizens or subjects, concerning the conditions or charges of transit."  

At the time of the signing in 1977, the handover was a controversial decision and was vehemently opposed by many conservative leaders - including future President Ronald Reagan, who criticized Ford and Carter for the transfer treaty. These concerns faded from view over the intervening decades, and were dormant until revived by Trump's comments on Saturday. 

Today, the canal is operated by the Autoridad del Canal de Panama (AMP), a Panamanian government agency. In addition to the smaller American-built canal, AMP has constructed the larger New Panama Canal lock system, which has opened up new all-water transport routes between Asia and the Atlantic - and improved the fortunes of Gulf Coast LNG terminals and U.S. East Coast container ports. 

AMP commercially operates the two canal systems based on a set rate sheet, augmented by an auction system to book reserved transit dates. Prices for bookings float with international demand, and have sometimes risen to high levels. Last year, when water use restrictions limited lock operations, congestion drove slot prices to a record $4 million for a single prime-time reserved transit.